Will the Post-Earnings Rally in SNC-Lavalin Group Inc. Continue?

SNC-Lavalin Group Inc. (TSX:SNC) released first-quarter earnings on May 7 and its stock reacted by rising over 5%. Should you buy in to the rally?

| More on:
The Motley Fool

SNC-Lavalin Group Inc. (TSX:SNC), one of the largest engineering and construction companies in the world, announced first-quarter earnings before the market opened on May 7, and its stock responded by rising over 5% in the day’s trading session. Let’s take a thorough look through the quarterly report to determine if this could be the start of a sustained rally higher, or if all the good news is already priced in to the stock.

The results that ignited the 5% rally

Here’s a summary of SNC’s first-quarter earnings results compared with its results in the same period a year ago.

Metric Q1 2015 Q1 2014
Diluted Earnings Per Share $0.68 $0.62
Revenue $2.26 billion $1.72 billion

Source: SNC-Lavalin Group Inc.

SNC’s diluted earnings per share increased 9.7% and its revenue increased 31.2% compared with the first quarter of fiscal 2014. These very strong results can largely be attributed to the company’s “landmark” $1.97 billion acquisition of Kentz Corp., which was completed in August 2014. The acquisition was a primary driver behind revenues increasing 60.3% to $977.97 million in its Packages segment and 72.7% to $869.59 million in its Services segment.

Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:

  1. Net income increased 10.7% to $104.83 million
  2. Revenues decreased 4.7% to $357.42 million in its Operations & Maintenance segment
  3. Revenues decreased 77.5% to $52.07 million in its Infrastructure Concession Investments segment
  4. Direct costs of activities increased 40.8% to $1.92 billion
  5. Gross profit decreased 5.5% to $337.15 million
  6. Earnings before interest and taxes decreased 40.1% to $101.16 million
  7. Revenue backlog increased 38.9% to $11.63 billion
  8. Cash and cash equivalents increased 3.6% to $1.1 billion

SNC also announced that it will be maintaining its quarterly dividend of $0.25 per share, and the next payment will come on June 4 to shareholders of record at the close of business on May 21.

Should you buy shares of SNC-Lavalin today?

SNC-Lavalin Group posted very strong first-quarter results, so I think its stock responded correctly by rising over 5%. However, I think there is still plenty of room left to the upside for the stock.

First, SNC’s stock trades at just 22.2 times fiscal 2015’s estimated earnings per share of $2.04 and only 16 times fiscal 2016’s estimated earnings per share of $2.84, both of which are very inexpensive compared with its five-year average price-to-earnings multiple of 43. I think the company’s stock could consistently command a fair multiple of at least 25, which would place its shares around $51 by the conclusion of fiscal 2015 and around $71 by the conclusion of fiscal 2016, representing upside of more than 12% and 56%, respectively, from current levels.

Second, SNC pays an annual dividend of $1 per share, which gives its stock a 2.2% yield at today’s levels. A 2.2% yield is not high by any means, but it is very important to note that the company has increased its dividend for 15 consecutive years, making it one of the top dividend-growth plays in the market today.

With all of the information provided above in mind, I think SNC-Lavalin Group represents one of the best long-term investment opportunities in the TSX 60 today. Foolish investors should take a closer look and strongly consider beginning to scale in to positions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Dividend Stocks

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Beginner Investors: 5 Top Canadian Stocks for 2024

New to the stock market? Here are five Canadian companies to build a portfolio around.

Read more »

Increasing yield
Dividend Stocks

Want to Gain $1,000 in Annual Dividend Income? Invest $16,675 in These 3 High-Yield Dividend Stocks

Are you looking for cash right now? These are likely your best options to make over $1,000 in annual dividend…

Read more »

TELECOM TOWERS
Dividend Stocks

Passive-Income Investors: The Best Telecom Bargain to Buy in May

BCE (TSX:BCE) stock may be entering deep-value mode, as the multi-year selloff continues through 2024.

Read more »

edit Safe pig, protect money
Dividend Stocks

3 Safe Dividend Stocks to Own for the Next 10 Years

These Canadian dividend gems could help you earn worry-free passive income over the next decade.

Read more »

A plant grows from coins.
Dividend Stocks

Dividend Stocks: What’s Better? Growth or Consistency?

Are you trying to invest in dividend stocks? What’s better, growth or consistency? Here’s my take.

Read more »

Cogs turning against each other
Dividend Stocks

How to Build a Bulletproof Monthly Passive Income Portfolio With Just $5,000

Looking for solid stocks for a bulletproof income portfolio? Consider adding these two REITs.

Read more »

clock time
Dividend Stocks

Is Now the Right Time to Buy goeasy Stock? Here’s My Take

Shares of goeasy stock (TSX:GSY) slumped last year on a federal announcement, but that has all changed since then.

Read more »

Man making notes on graphs and charts
Dividend Stocks

How Much Cash Do You Need to Stop Working and Live Off Dividends?

Are you interested in retiring and living off dividends? Here’s how much cash you'll need!

Read more »